CONTENTS OF VOLUME 1B

Introduction to the Series v

Contents of the Handbook vii

Preface xi

PART IV: TECHNOLOGY

Chapter 16

Growth and Ideas

CHARLES I. JONES 1063

Abstract 1064

Keywords 1064

Introduction 1065

2. Intellectual history of this idea 1069

3. A simple idea-based growth model 1070

3.1. Themodel 1070

3.2. Solvingforgrowth 1072

3.3. Discussion 1073

4. A richer model and the allocation of resources 1074

4.1. The economic environment 1074

4.2. Allocating resources with a rule of thumb 1076

4.3. The optimal allocation of resources 1079

4.4. A Romer-style equilibrium with imperfect competition 1082

4.5. Discussion 1086

5. Scale effects 1088

5.1. Strong and weak scale effects 1090

5.2. Growth effects and policy invariance 1093

5.3. Cross-country evidence on scale effects 1095

5.4. Growth over the very long run 1097

5.5. Summary: scale effects 1101

6. Growth accounting, the linearity critique, and other contributions 1101

6.1. Growth accounting in idea-based models 1101

6.2. The linearity critique 1103

6.3. Other contributions 1105

7. Conclusions 1106

Acknowledgements 1108

References 1108

Chapter 17

Long-Term Economic Growth and the History of Technology

joelmokyr 1113

Abstract 1114

Keywords 1114

1. Introduction 1115

2.Technology and economic growth 1116

3.A historical theory of technology 1119

4.The significance of the Industrial Revolution 1126

5.The intellectual roots of the Industrial Revolution 1131

6.The dynamic of technological modernity 1144

7.Humancapitalandmoderneconomicgrowth 1155

8.Institutionsandtechnologicalprogress 1161

9.Conclusions: Technology, growth, and the rise of the occident 1169

Acknowledgements 1173

References 1174

Chapter 18

General Purpose Technologies

BOYAN JOVANOVIC AND PETER L.

ROUSSEAU 1181

Abstract 1182

Keywords 1183

1. Introduction 1184

1.1. WhatisaGPT? 1185

1.2. Summaryoffindings 1186

2.Measuring the three characteristics of a GPT 1187

2.1. Pervasiveness of the GPT 1187

2.2. ImprovementoftheGPT 1195

2.3. Ability of the GPT to spawn innovation 1198

3.OthersymptomsofaGPT 1203

3.1. Productivity slowdown 1204

3.2. Theskillpremium 1205

3.3. Entry, exit, and mergers should rise 1206

3.4. Stock prices should fall 1207

3.5. Young firms should do better 1208

3.6. Consumption, interest rates, and the trade deficit 1217

4.Conclusion 1221

Acknowledgements 1221

References 1221

Chapter 19

Technological Progress and Economic Transformation

JEREMY GREENWOOD AND ANANTH SESHADRI 1225

Abstract 1226

Keywords 1226

1. Introduction 1227

1.1. Technologicalprogressinthemarket 1227

1.2. Technologicalprogressinthehome 1229

1.3. Thegoal 1230

2. The baby bust and baby boom 1231

2.1. The environment 1231

2.2. Analysis 1233

3. The U.S. demographic transition 1238

3.1. Theenvironment 1238

3.2. Analysis 1242

4. The demise of child labor 1246

4.1. The environment 1247

4.2. Analysis 1248

5. Enginesofliberation 1250

5.1. The environment 1252

5.2. Analysis 1254

5.3. Analysis with nondurable household products and services 1258

6. Conclusion 1260

7. Literature review 1261

7.1. Fertility 1261

7.2. The economics of household production 1262

7.3. Structural change 1263

7.4. Child labor 1264

7.5. Female labor-force participation 1266

Acknowledgements 1268

Appendix: 1268

A.1. Supporting calculations for Lemmas 2 and 4 1268

A.2. Supporting calculations for Lemmas 5 and 6 1270

References 1271

Chapter 20

The Effects of Technical Change on Labor Market Inequalities

ANDREAS HORNSTEIN, PER KRUSELL AND GIOVANNI L. VIOLANTE 1275

Abstract 1278

Keywords 1278

1. Introduction 1279

2. A look at the facts 1281

2.1.

Labor market inequalities 1281

2.2. Technological change 1289

3. Skill-biased technical change: Inside the black box 1298

3.1. Capital-skill complementarity 1298

3.2. InnateskillsandtheNelson-Phelpshypothesis 1301

3.3. Endogenous skill-biased technical change 1304

3.4. Ahistoricalperspectiveontheskillpremium 1308

3.5. Technologyandthegendergap 1311

4. Technical change and the returns to experience 1313

4.1. Experience with general purpose technologies 1313

4.2. Vintage-specificity of experience 1315

4.3. Technology-experience complementarity in adoption 1316

4.4. On-the-job training with skill-biased technological change 1317

5. Inside the firm: The organization of work 1319

5.1. TheMilgrom-Robertshypothesis: IT-driven organizational change 1320

5.2. Directedorganizationalchange 1323

5.3. Discussion 1325

6. Technical progress as a source of change in labor market institutions 1325

6.1. Skill-biased technology and the fall in union density 1327

6.2. Skill-biased technology and the fall in centralized bargaining 1328

6.3. Discussion 1329

7. Technological change in frictional labor markets 1331

7.1. Technological progress and frictional unemployment 1332

7.2. Technological heterogeneity and the returns to luck 1333

7.3. Vintage human capital with frictions 1334

7.4. Random matching vs. directed search as source of luck 1338

8. Technology-policy complementarity: United States vs. Europe 1339

8.1. TheKrugmanhypothesis 1340

8.2. Rise in microeconomic turbulence 1342

8.3. Slowdown in total factor productivity 1346

8.4. Acceleration in capital-embodied technical change 1346

8.5. Skill-biased technical change 1349

8.6. Endogenous technology adoption 1350

8.7. Sectoral transformation 1352

8.8. Discussion 1353

9. Welfareandpolicyimplications 1353

9.1. Lifetimeearningsinequality 1354

9.2. Consumption inequality 1355

9.3. Welfare implications 1356

9.4. Briefdirectionsforpolicy 1359

10.

Concluding remarks 1360

Acknowledgements 1361

References 1362

Chapter 21

A Unified Theory of the Evolution of International Income Levels

STEPHEN L. PARENTE AND EDWARD C. PRESCOTT 1371

Abstract 1372

Keywords 1372

1. Introduction 1373

2.Atheoryofeconomicdevelopment 1376

2.1. Classical theory: the pre-1700 era 1377

2.2. Modern growth theory: the post-1900 era 1382

2.3. Thecombinedtheory 1383

3.Atheoryofrelativeefficiencies 1389

3.1. The aggregate production function 1391

3.2. Consequencesofconstraintsforaggregateefficiency 1392

3.3. Estimatesofaggregaterelativeefficiency 1394

3.4. Reasonsforconstraints 1395

4.Aunifiedtheoryoftheevolutionofinternationalincomes 1396

4.1. Delays in starting dates 1397

4.2. No catch-up after the transition in many countries 1400

4.3. Catch-up and growth miracles 1403

4.4. Unmeasured investment 1406

5.Catching up 1407

5.1. Catch-up facts 1407

5.2. Reasons for catching up or not catching up 1408

6.Concluding remarks 1413

Acknowledgements 1414

References 1414

PART V: TRADE AND GEOGRAPHY

Chapter 22

A Global View of Economic Growth

Jaumeventura 1419

Abstract 1420

Keywords 1420

0. Introduction 1421

1. The integrated economy 1426

1.1. A workhorse model 1426

1.2. Diminishing returns, market size and economic growth 1430

1.3. The effects of economic integration 1436

2.Specialization, trade and diminishing returns 1442

2.1. Economic growth in autarky 1444

2.2. Factor price equalization 1446

2.3. Formal aspects of the model 1454

2.4. Limits to structural transformation (I): factor proportions 1456

2.5. Limits to structural transformation (II): industry productivities 1464

3. Transportcostsandmarketsize 1472

3.1. Nontradedgoodsandthecostofliving 1473

3.2. Agglomerationeffects 1481

3.3. Theroleoflocalmarkets 1487

4. Final remarks 1490

Acknowledgements 1492

References 1492

Chapter 23

Trade, Growth and the Size of Countries

ALBERTO ALESINA, ENRICO SPOLAORE AND ROMAIN WACZIARG 1499

Abstract 1500

Introduction 1501

2. Size, openness and growth: Theory 1502

2.1. Thecostsandbenefitsofsize 1502

2.2. A model of size, trade and growth 1506

2.3. The equilibrium size of countries 1510

2.4. Summing up 1513

3. Size, openness and growth: Empirical evidence 1514

3.1. Trade and growth: a review of the evidence 1514

3.2. Country size and growth: a review of the evidence 1516

3.3. Summing up 1518

3.4. Trade, size and growth in a cross-section of countries 1518

3.5. Endogeneity of openness: 3SLS estimates 1525

4. Country size and trade in history 1530

4.1. The city-states 1530

4.2. The absolutist period 1531

4.3. The birth of the modern nation-state 1531

4.4. The colonial empires 1532

4.5. Borders in the interwar period 1533

4.6. Bordersinthepost-SecondWorldWarperiod 1534

4.7. TheEuropeanUnion 1536

5. Conclusion 1538

Acknowledgements 1539

References 1539

Chapter 24

Urbanization and Growth

J. VERNON HENDERSON 1543

Abstract 1544

Keywords 1544

1. Facts and empirical evidence 1547

1.1. Thesizedistributionofcitiesanditsevolution 1548

1.2. Geographicconcentrationandurbanspecialization 1554

1.3. Urbanization in developing countries 1558

2. Citiesandgrowth 1564

2.1. Thesystemsofcitiesatapointintime 1565

2.2. Growth in a system of cities 1571

2.3. Extensions 1573

3. Urbanization and growth 1577

3.1. Two sector approaches, without cities 1577

3.2. Urbanizationwithcities 1579

3.3. Extensions and policy issues 1582

4. Some issues for a research agenda 1586

Acknowledgement 1587

References 1587

PART VI: GROWTH IN BROADER CONTEXTS

Chapter 25

Inequality, Technology and the Social Contract

ROLAND BENABOU 1595

Abstract 1596

Keywords 1596

Introduction 1597

1. Inequality, redistribution and growth 1600

1.1. Production, preferences and policy 1601

1.2. Distributional dynamics and aggregate growth 1603

1.3. Voter preferences, political power and equilibrium policy 1606

Sustainable social contracts 1609

2.1. Dynamics and steady states 1609

2.2. Whichsocietiesgrowfaster? 1611

3. Technology and the social contract 1612

3.1. Exogenous technical change and the viability of the welfare state 1613

3.2. Skills, technology and income inequality 1618

3.3. Technologicalchoiceandendogenousflexibility 1619

4. Endogenous institutions and endogenous technology 1623

5. Exporting inequality: Spillovers between social contracts 1627

5.1. A shift in one country's technological frontier 1628

5.2. A shift in one country's political institutions 1629

6. Conclusion 1629

Acknowledgements 1630

Appendix: Proofs 1630

References 1635

Chapter 26

Social Capital

STEVEN N. DURLAUF AND MARCEL FAFCHAMPS 1639

Abstract 1640

Keywords 1640

1. Introduction 1641

2.Social capital: Basic concepts 1642

2.1. Definingsocialcapital 1642

2.2. The efficiency of social exchange 1645

2.3. Social capital and development 1648

2.4. Social capital and equity 1650

3.When does social capital matter? 1651

3.1. Sources of inefficiency 1651

3.2. Channels 1652

3.3. Formaltheory 1658

4.From theory to empirics: Econometrics and social capital 1660

4.1. Externalities and individual vs. aggregate effects 1661

4.2. Model specification 1663

4.3. Identification 1667

4.4. Additionalissues 1671

5.Empirical studies of the effects of social capital 1672

5.1. Individual-level studies 1672

5.2. Aggregate studies 1680

6.Empirical studies of the level and determinants of social capital 1685

7.Suggestions for future research 1688

8.Conclusions 1692

Acknowledgements 1693

References 1693

Chapter 27

The Effect of Economic Growth on Social Structures

Franqoisbourguignon 1701

Abstract 1702

Keywords 1702

Introduction 1703

1. Statistical relationships between growth and social structures 1705

2.The effect of economic growth on social structures:

Theoretical considerations 1711

2.1. The sectoral shift view 1713

2.2. General equilibrium models of the distributional effects of growth 1715

2.3. Nonlinear savings behavior 1719

2.4. The role of technical progress 1720

2.5. Conclusion 1722

3. The effect of economic growth on social structures: Empirical evidence 1723

3.1. Thesectoralshifteffectofgrowthonsocialstructures 1723

3.2. Effect of growth on inequality between socio-economic groups 1726

3.3. Effects of growth on inequality among individuals 1731

4. Conclusions 1739

4.1. The foremost importance of sectoral shift phenomena 1739

4.2. The role of market integration 1739

4.3. Socialcostsoftransitoryadjustment 1740

4.4. Effectofgrowthonsocialstructuresthroughsocialinstitutions 1740

Acknowledgements 1742

References 1742

Chapter 28

Economic Growth and the Environment: A Review of Theory and Empirics WILLIAM A. BROCK AND M. SCOTT TAYLOR 1749

Abstract 1750

Keywords 1750

1. Introduction 1751

2. Preliminaries 1757

2.1. Scale, composition and technique 1757

3. Stylizedfactsonsourcesandsinks 1761

4. Some illustrative theory 1772

4.1. The Green Solow benchmark 1772

4.2. Intensifying abatement: the Stokey alternative 1778

4.3. Composition shifts: the source and sink model 1787

5. Induced innovation and learning by doing 1798

5.1. Induced innovation and the Kindergarten Rule model 1799

5.2. Empirical implications 1810

5.3. Balanced growth path predictions 1810

5.4. The Environmental Catch-up Hypothesis 1811

5.5. TheECHandtheEKC 1813

5.6. Pollution characteristics 1814

6. Conclusion and suggestions for future research 1816

References 1819

Author Index I-1

Subject Index

I-37

Chapter 16

GROWTH AND IDEAS

CHARLES I. JONES

Department of Economics, University of California, Berkeley

and

NBER

Contents